2012 year-end portfolio review

[disneysteve]

I think I actually have all of my year-end data in place as of now so I can review how our finances weathered 2012. I made a blog post about this but thought I'd share it here, too.

Our total invested assets including non-retirement, retirement, and college savings accounts increased by 18.2%. That number would have been higher but I did dip into savings to replace my 1998 car at the end of June. If not for that, the portfolio would have been up by over 20%.

On the debt side of the balance sheet, our mortgage balance dropped by about $7,150 or a little over 10% of the balance on 1/1/12. As noted, I also bought a car. In addition to the down payment, I did take a loan for about 13K and have already repaid over $5,300 of that since July. I don't intend to keep that loan for more than a year or so.

So assets up 18.2%, mortgage down 10%, and a new car loan that is already more than 41% repaid in less than 6 months. Overall, I think that was a pretty decent year. I hope everyone else had a good year too.

[cooliemae]

I would say that we didn't have too bad a year.

Our liabilities (car/student loans) dropped by 29%.
Our Investments increased by 24% (split close to evenly between contributions and gains).
These gains translated into our net worth increasing by 37% in 2012.

[moneybags]

Our total invested assets including non-retirement, retirement, and college savings accounts increased by 18.2%. That number would have been higher but I did dip into savings to replace my 1998 car at the end of June. If not for that, the portfolio would have been up by over 20%.

Just curious - the 18.2% includes earnings and additional savings, right? Do you know the break-out between the two? I'll have my percentages later today or tomorrow.

[disneysteve]

Just curious - the 18.2% includes earnings and additional savings, right? Do you know the break-out between the two? I'll have my percentages later today or tomorrow.

No, I didn't break it down yet.

Of course, as the value of the portfolio grows, the percentage impact of the annual contributions gets smaller. For example, if I earn 100K and contribute 20%, that's 20K going in. If I start with 100K in savings, that 20K represents an additional 20%. If, however, I start with 500K in savings, that 20K only represents 4%.

[smk]

i think the purpose of tracking portfolio growth is to measure returns. but if you make contributions or withdrawals during the year that can impact the returns and should be addressed. if you are just measuring the size of your portfolio from 1 year to the next without considering returns, you should deduct the impact of inflation to direct comparison. otherwise you are comparing inflated dollars to non-inflated dollars, which does not make much sense...

[disneysteve]

i think the purpose of tracking portfolio growth is to measure returns.

That's true, but the absolute value is important too as far as retirement planning is concerned. I could be getting a great return but if I'm not saving enough of my income, I'm not going to reach my goals.

[bjl584]

I had a really good year. I don't have actual numbers in front of me, but I am up significantly.

[smk]

That's true, but the absolute value is important too as far as retirement planning is concerned. I could be getting a great return but if I'm not saving enough of my income, I'm not going to reach my goals.

from a planning perspective, the absolute value of a portfolio actually isn't very important. it is changing depending upon whether you are saving or withdrawing funds and is constantly eroded by inflation. i was just saying to compare apples to apples, $1 today does not equal $1 in a year because of the difference of inflation during that year. the comparison does not work.

but the goal is to be able to pay each of your expenses as they come up throughout your life. it is not measured by total portfolio value. it is measured by comparing the assets and projected income versus the expenses (typically represented by a series of TIPs to account for inflation). if you want to see how you are doing, it is best to compare the change in what % of those bills you will be able to pay from one year to the next while keeping your risk level the same. this should all be done on a constant dollar basis...

[siggy_freud]

I haven't run any summary numbers yet, but I did have a few wins in 2012:

• Paid off one of my student loans, and in addition to paying that off reduced what I owe from $58k to about $50k.
  Have about $11k saved and dedicated to a student loan payoff. Going to use my vacation payout to top it off and pay off the loan.

• Refinanced the house, dropping the payment from $735 a month to $602.

• Leased a car at $200 a month, that saves me over $200 in gas each month compared to my last car. Also costs $200 per month less in an overall payment for a total savings of $400 a month.

• And in December I secured a job starting tomorrow that will bump my salary from $67k to $96k. Leaving government for the first time in a long time, but I am excited at the new opportunity. Going to use the extra money to RAPIDLY pay down student loans, and be student loan-free this year.

Overall a pretty decent financial year in terms of debt reduction and earning more, but hoping 2013 will be better!

[humandraydel]

from a planning perspective, the absolute value of a portfolio actually isn't very important.

Best news I've heard all day! Last year I had $1 saved. This year, I have $2 for 100% gain! Guess I'm on track for early retirement?

[disneysteve]

from a planning perspective, the absolute value of a portfolio actually isn't very important.

So all of the advisers and planners and articles and books and calculators that are based on acquiring 25X income or some other number are off base?

[kork13]

This is a fairly complex question for me this year. It's been turbulent to say the least, though I feel it's been a good year for me financially-speaking. I moved back to the U.S. from overseas this summer, which skews the numbers to make my situation look a little more grim than it really is. These numbers aren't 100% accurate, but close enough for me to draw conclusions with.

- Cash Accounts: Decreased by ~$12k (-35%) -- $20k in cash went toward my home purchase in September. Due to now-higher expenses, my EF is somewhat underfunded, but I'm slowly building that up to where I want it.
- Non-Retirement Investments: Decreased by ~$18k (-30%), but I had +15% investment returns -- I cashed out $30k in investments for my home DP.
- Retirement accounts: Increased by ~$23k (+45%), also with +15% investment returns.
- Debts: Skyrocketed. I paid off my last $10k in debt from college, but after moving back to the states, I bought a house and a car. In so doing, I took on a $130k home mortgage and $19k car loan -- I have since paid down $5k. Total debt: $144k ... ( )
- Total Assets: Increased by $167k -- includes $131k Cash/Investments + $180k home
- Total Net Worth: Increased by $34k (+25%), to approximately $168k at present.

Bottom line: I'm doing fine (especially for my age at 26), and my overall portfolio did very well this year. The debt figure is a little (okay, quite) daunting, but my rational side knows that I can afford it, the rates are low (car: 1.9%, house: 2.75%), and they are on pace for relatively quick payoffs (~2 years on the car loan, ~13 years on the house).

[cougs4bcs]

Well, I'd say it was a solid 2012. Went from about $10 in my checking at all times on Jan 1 2012 (broke college student) to having slightly over $10k in all my accounts. I feel this is very good seeing as I was laid off just 4 months into my first real job in April. I found a new job about a week later and started in late May. Been going well every since! In late May, I had about 2k to my name. Now, just over 6 months later, I have built my emergency fund fully and am just waiting for my next paycheck to open up my Roth! Also, I have about 300 in my 401k. Right now, I pretty much just see this as extra money as I plan to use my Roth as my primary source of funding my retirement.

Seeing as I just graduated college 1 year ago and all I've gone through this year, it has been quite a good year financially!

[smk]

So all of the advisers and planners and articles and books and calculators that are based on acquiring 25X income or some other number are off base?

you're beginning to get this. in the 1980's the banking industry was in the business of borrowing short and lending long. with the volatility in rates they learned that if they did not target their liabilities there would not be a banking industry any more. for long term liabilities such as life insurance companies and pensions, you have more time before you actually run out of cash. a finance professor recently told me the defined benefit pension industry is about 5 years away from being no more. they have been using the model so many people in the planning industry use. the life insurance industry uses asset liability analysis. they seem to be fine.

when investing, you need to look at the purpose of the investment. the first purpose is to support youself throughout your life so no one else has to. you cite studies supporting a 4% withdrawal rate and suddenly get an unexpected and long term inflation surge. There is no FUNDAMENTAL reason this cannot happen as it has occured in countries with a longer history. when you are in your retirement looking at your last dollars they will be citing studies for a 2% withdrawal rate based upon new information. if you hedge your inflation risk properly, you won't be looking at your last dollars. when you measure your risk, you need to look at what you are doing and not assume away all your risks because it paints a rosier picture...

[disneysteve]

when investing, you need to look at the purpose of the investment. the first purpose is to support youself throughout your life so no one else has to. you cite studies supporting a 4% withdrawal rate and suddenly get an unexpected and long term inflation surge. There is no FUNDAMENTAL reason this cannot happen as it has occured in countries with a longer history. when you are in your retirement looking at your last dollars they will be citing studies for a 2% withdrawal rate based upon new information. if you hedge your inflation risk properly, you won't be looking at your last dollars. when you measure your risk, you need to look at what you are doing and not assume away all your risks because it paints a rosier picture...

I've read this 3 times now and I still can't figure out what the heck you are trying to say. If the purpose of my investment is to support me after I stop working, the absolute value of that investment certainly matters a great deal. If my investment is $1 million, that's going to provide me with a much lower income stream than if my investment is $2 million.

Are you saying the 4% withdrawal rate is wrong and should be 2%? If so, then the absolute value matters even more.

I'm not seeing how what you've posted speaks against paying attention to the value of my portfolio.